Sectors Impacted Most By Wage Growth

There are two points of reference to understand when reviewing how young workers are doing. The first point is that young people are far less likely to work now than in prior business cycles. It’s common to hear older baby boomers talk about how they worked at a very young age. Some equate young people working less as a form of laziness. However, the reality is young people are more focused on school because of the changing labor market. A college diploma is a prerequisite for a much higher percentage of jobs now than it was back when baby boomers were young. Unfortunately, this change has led to a surge in student debt to all-time highs. The goods news is the labor market is more educated. The bad news is student loans prevent people from spending money and forming households.

Specifically, the labor force participation ratio for Americans ages 16 to 19 is 35.6%. That is in the middle of this cycle’s range which has varied from 32.5% to 37.7%. From 1972 to 2001, this participation rate never fell below 50%. Going back to 1948, before this cycle the record low was 43% in 1965. The historical change in the participation rate for workers between 20 and 24 years old is similar, but less pronounced. The current participation rate is 70.6%. That’s near the low end of this cycle’s range. From 1977 to 2004, the yearly average never fell below 75%. In summary, young people are working less. The fact that young people become independent at an older age means it is more expensive to raise kids. This could lower the birth rate.

Younger Workers Getting Paid More

The second point to understanding how young workers are doing is to look at the wage growth for production and non-supervisory workers because teenagers don’t have college degrees. Nominal growth for non-supervisory workers hit 3.3% in December which is the cycle high. It’s great to be a worker without a college degree at the end of cycles.

As you can see from the chart below, median weekly earnings of young people has hit the highest level since 2002 relative to their older counterparts. Americans ages 16 to 24 working full-time make $549 per week which is 58.8% of what people 25 and older make. This increase has been caused by the tight labor market. The chart below shows how young people do well at the end of the cycle.

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Gary Anderson 1 year ago Contributor's comment

This is good so far. Rising wages without inflation is a good thing. The issue is, though, how much of a drag on the economy will automation and AI bring in a downturn.